Kitchen Supply, Inc. (KSI), manufactures three types of flatware: institutional, standard, and silver. It applies all indirect
Question:
In addition, management estimated 7,500 direct labor-hours for Year 2.
Assume that the following cost driver volumes occurred in January Year 2:
Actual labor costs were $15 per hour.
Required
a. Compute a predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units prepared by the consultant. Also compute a predetermined rate for year 2 using direct labor-hours as the allocation base.
b. Compute the production costs for each product for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement (a).
c. Compute the production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement (a).
d. Management has seen your numbers and wants an explanation for the discrepancy between the product costs using direct labor-hours as the allocation base and the product costs using activity-based costing. Write a brief response tomanagement.
Step by Step Answer:
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher